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Monday, March 24, 2014

Driving ZIRP Home

The blue line (right scale) shows the 12-month moving total of vehicle miles traveled.

Maybe we'll make it through the ceiling (seen in purple) this time. Maybe we won't. In any event, it is a long climb back to 2007.

Correlation does not prove causation, and that is certainly not what I'm trying to do here. I just find it interesting. That's all. Further, I think it is open for debate on which way the actual causation would be.

Has ZIRP caused oil prices to rise and therefore vehicle miles to stagnate? Or have struggling vehicle miles been a sign of a struggling economy and hence the Fed's desire to continue ZIRP? Or perhaps both working in combination?

For what it is worth, even if vehicle miles traveled do rise to 2007 levels at some point in the not too distant future, I would not expect to see the fed funds rate necessarily follow suit. This chart does not extrapolate backwards in time all that well. Over the long-term (until recently), vehicle miles traveled have been growing exponentially. The same cannot be said of the fed funds rate (which has generally been in decline for 30+ years).

Disclaimer

I am not a financial advisor. I am not offering investment advice. Although I have attempted to provide accurate information, that's all it is, an attempt. Please do not trust the opinions, numbers, and/or charts of a random anonymous blogger on the Internet. Make your own opinions. Make your own charts. Do your own due diligence. Thank you.